BUSINESS NEWS - Eskom would be satisfied with an additional 2% tariff increase every year for the next five years to compensate it for the R66 billion it is claiming for unforeseen expenses and unrealised revenue for the three years ended March 31, 2017.
This position, expressed at an information sharing session hosted at the utility’s Megawatt Park headquarters in Johannesburg, dispels fears of a once-off 30% tariff increase, should the National Energy Regulator of South Africa (Nersa) grant Eskom the full amount.
It will, however, be in addition to the tariffs determined in the next multi-year tariff determination process (MYPD4), which Eskom is expected to submit in the second half of this year and the application of a further interim increase relating to under-recovery and over-expenditure in 2017/18 that it will submit in July. In this 2017/18 application, Eskom is expected to apply for about R20 billion to be clawed back.
Nersa will start on April 16 with public hearings about Eskom’s application for the additional R66 billion. The first hearing will be in Cape Town and after similar hearings in every province, the last hearing will take place in Gauteng on May 11.
Nersa will announce its decision on June 21 and has told Moneyweb that the earliest date any tariff increase could be implemented would be April 1, 2019 for Eskom’s direct clients and July 1, 2019 for municipalities. The regulator is allowed to liquidate the amount it grants Eskom over several years.
Eskom general manager for regulation, Hasha Tlhotlhalemaje explained to journalists that the application is done in terms of the Regulatory Clearing Account (RCA), which allows for cost recovery and revenue adjustments based on actual past variances.
It is a risk management tool designed to mitigate against the fact that tariff determinations are made on the basis of assumptions that may or may not play out as expected.
Of the R66 billion Eskom applies for, R44 billion is the result of lower than anticipated sales volumes, Tlhotlhalemaje said.
The balance consists of R7.4 billion relating to Independent Power Producers (IPPs), R9.2 billion for international purchases, R3.3 billion in favour of consumers related to the environmental levy, R3.5 billion related to coal cost and R1.4 billion related to increased use of open-cycle gas turbines (OCGT) during the period, when the risk of load shedding was present.
Eskom is not allowed to recover over-expenditure on operating cost through the RCA mechanism.
Tlhotlhalemaje said Eskom aligned its RCA applications with Nersa’s decision with regard to the RCA determination for 2013/14. Nersa then disallowed large amounts for extensive OCGT use and only allowed the equivalent cost, should Eskom have used coal generation instead.
It rejected Eskom’s argument that the expense was prudent because it assisted in averting load shedding, which is much more costly for the economy.